This marked Tokyo's second revision higher after previously giving estimates of 70 and 120 kilotons.
Defence Minister Itsunori Onodera told reporters that his ministry's upward revision to 160 kilotons was based on a revised magnitude by the Comprehensive Nuclear-Test-Ban Treaty Organisation (CTBTO).
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The US bomb that destroyed Hiroshima in 1945 carried a yield of 15 kilotons.
Japan's latest estimate far exceeded the yield of between 50 and 100 kilotons indicated by UN political affairs chief Jeffrey Feltman at the UN Security Council.
Early Wednesday, Onodera held telephone talks with US Defense Secretary Jim Mattis and both agreed to step up "visible pressure" on North Korea, the ministry in Tokyo said.
"North Korea's nuclear and missile development is at a new stage of grave and imminent threats," Onodera told Mattis, the ministry said, adding that his US counterpart shared the view.
Pyongyang's Sunday test of what it described as a hydrogen bomb designed for a long-range missile triggered global alarm and has divided the international community as it scrambles for a response.
US Ambassador Nikki Haley told the UN Security Council that Washington would present a new sanctions resolution to be negotiated in the coming days, but Russian President Vladimir Putin on Tuesday rejected US calls for more sanctions as "useless".
Putin's comments appeared to have widened a split among major powers over how to rein in Pyongyang, pitting Moscow and Beijing against Washington and its allies.
Japanese Prime Minister Shinzo Abe is expected to press Putin for his support over the North Korea's provocation, when the two leaders hold talks in the Russian Far East city of Vladivostok on Thursday.
"We have to make North Korea change its current policy and understand that there is no bright future if North Korea continues the present policy," Abe told reporters ahead of his departure.
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